Deba Aubin at Reuters has a great scoop this morning, reporting that the PCAOB "will fault PwC for not promptly addressing quality control problems found during inspections of some of its 2007 and 2008 audits," according to an internal PwC memo dated today and signed by Bob Moritz. [cue]
And it doesn't sound like BoMo is crazy about these findings:
In the memo, PwC defended its efforts to improve quality controls and said it was disappointed with the watchdog's report. It said the PCAOB's criticisms "relate to some of the most complex, broad, judgmental and evolving areas of auditing."
This would be the second time such a report was issued by the PCAOB. The Board released Part II of Deloitte's 2008 inspection report back in 2011.
I guess we shouldn't be surprised. Last November, PwC's 2012 inspection report showed that the firm's results had actually gotten worse than the year prior, with an error rate of 41% of the audits inspected. That doesn't exactly illustrate progress in the area of quality control. At the time, we noted that the firm's response to that report was a little more extensive than we're used to seeing, with BoMo and audit leader Tim Ryan telling the PCAOB to up its game a little:
Meeting the challenges that must be addressed to consistently perform high-quality audits is our top priority. We look forward to continuing our dialogue with the PCAOB in support of our priority commitment to audit quality. In this regard, we hope that some of the Board's important standard-setting activities — such as proposed standards with regard to auditing fair value measurements, auditing management's estimates, and strengthening firms' systems of quality control — can be accelerated. In our view, the consistency of audit execution, not only within a single firm but across the profession, can be greatly enhanced with standards that reflect the increasingly complex accounting and auditing environment in which we operate.
We can't possibly know when the PCAOB made up its mind to issue Part II for PwC's audits, which is a shame because it would be great to know if Jim Doty & Co. were sitting around, reading this response, and when they got to that last sentence they said to each other, "They're not exactly tearing it up either, are they?. Should we issue Part II? Let's issue Part II."
Of course no one is talking, but it's interesting that the leak came from PwC. Not because you'd expect someone at the Board to be the source — becuase they are notoriously tight-lipped with its inspection process — but why would someone with access to this memo want it out now? My guess is the firm wants to give itself the chance to control the initial narrative because the PCAOB's story will certainly not fit with what PwC wants to say. By getting in front of this, the firm steals the Board's thunder. You clever devil, BoMo!
Still, this doesn't do much for PwC's reputation as an auditor, so even if they are in front, they still have to endure a very public rebuke.
Anyway, the folks at Deloitte are probably relieved to have some company.
U.S. audit watchdog to criticize PwC – PwC internal memo [Reuters]